Transcript Slide 1

Energy Economic Outlook
Mike Jennings, CEO
Frontier Oil Corporation
October 2009
Three Classifications of Energy
Fossil Fuels
Coal
Petroleum
Nuclear
Natural Gas
Renewables
Hydroelectric
Biomass
Geothermal
Wind
Solar
2
U.S. Energy Consumption
by Source
Fossil fuels
supply 84% of
total U.S.
energy needs.
Petroleum1
supplies 37% of
total U.S.
energy
consumption.
1 Petroleum includes crude oil and natural gas liquids.
Source: EIA , Annual Energy Review 2008.
3
U.S. Energy Production
by Domestic Source
Domestic coal
production
supplies 32% of
total U.S.
energy needs.
1 Natural gas plant liquids
Source: EIA , Annual Energy Review 2008.
4
The Gap of Energy Dependence
Energy
dependence
began.
26% of energy
consumed in
U.S. is
provided by
net imports,
principally
crude oil.
Source: EIA , Annual Energy Review 2008.
• The U.S. was self-sufficient in energy until the late 1950s when
energy consumption began to outpace domestic production.
• At that point, the U.S. began to import more energy to fill the gap.
• The U.S. also depends on foreign sources for computer chips,
coffee, and many other goods.
5
U.S. Energy Use per Person
Energy
consumed per
person has
increased 50% in
50 years.
Source: EIA , Annual Energy Review 2008.
• Energy use per person increased until the oil price shocks of the mid1970s and early 1980s when the trend reversed for a few years.
• From 1988 on, the rate held fairly steady.
• Comparatively, the U.S. uses approximately 0.7x times the average
energy use per $ GDP of Canada and 1.4x times France or Germany.
6
Where do we fall short?
U.S. Production as % of Consumption
Consumption = 100%
Imports
The U.S. produces
enough coal to fulfill
consumption but
only 78% of natural
gas and 35% of
petroleum products.
Source: EIA , Annual Energy Review 2008.
Are we self-sufficient in…
COAL?
Yes, the U.S. has usually produced enough coal for its own
requirements.
NATURAL GAS?
No, in 1967 the U.S. self-sufficiency in natural gas ended, and
we began to consume more than we produced each year. In
2008, 22% of natural gas consumption was imported.
PETROLEUM?
No, U.S. petroleum production falls far short of domestic
demands, requiring the nation to rely on imported supplies. In
2008, 65% of petroleum consumption was imported.
7
Imports Forecasted to Shrink
U.S. Production Forecast
120
Quadrillion BTU
100
80
Net Imports
26%
17%
Other
Biomass
Net imports are
forecasted to shrink
from 26% of
consumption in 2008
to 17% by 2030.
60
40
Other
Renewables
Hydropower
Nuclear Power
Coal
Natural Gas
20
Crude Oil
0
2006
2010
2014
2018
2022
2026
2030
Source: EIA , Annual Energy Outlook 2009.
• Net imports forecasted to decline as a result of:
 Increases in domestic supply due to advancements
in biofuels, and
 Decreases in demand due to new fuel efficiency
standards, improvements in appliance efficiency,
and higher energy prices.
8
U.S. Consumption Forecast
Despite a forecast doubling of renewables, petroleum remains the largest
component of consumption forecast for 2030.
2008
2%
2030
4%
Petroleum Liquids
3%
7%
Natural Gas
8%
8%
40%
23%
Coal
37%
Nuclear
23%
Hydropower
22%
23%
Renewable
excluding Hydro
Source: EIA , Annual Energy Outlook 2009.
9
Emerging Markets as Energy Consumers
Emerging market
forecast consumption
growth over 25 years
approximately equals
OECD total energy use
in 1980!
Source: EIA , International Energy Outlook 2009.
10
Fossil Fuels
Domestic Coal
U.S. Coal Production
1,400
Million Short Tons
1,200
1,000
West of
Mississippi
800
600
400
East of
Mississippi
200
0
1950
1960
1970
1980
1990
2000
U.S. Recoverable Coal Reserves
(Million Short Tons)
Developed U.S. coal
reserves will supply the
U.S. for about 16 years at
current utilization, and
undeveloped reserves
probably add another 250
years of supply.
Source: EIA , Coal Tables.
Western
12,403
67%
Eastern
6,181
33%
12
Domestic Natural Gas
U.S. Natural Gas
U.S. unconventional resources of
natural gas are expected to
reduce the 16% of net imports in
2007 to 3% by 2030.
Source: EIA , Annual Energy Review 2008.
Natural Gas Supply
30
2007 saw the largest increase to
natural gas reserves (27 Tcf) in 30
years due to the recent rapid
development in unconventional
methods, such as coalbed
methane and shale plays.
Trillion Cubic Feet
25
20
Unconventional Resources
15
10
Net Imports
Alaska
Offshore
Associated
5
Conventional Resources
0
1990
1995
2000
2005
2010
Source: EIA , Annual Energy Outlook 2009.
2015
2020
2025
2030
13
Advancements in
Hydrocarbon Extraction
New technologies facilitate our
continuing ability to replace
petroleum reserves.
Energy is High Tech.
• Horizontal Drilling
• High pressure hydraulic
reservoir fracturing
• Deepwater Drilling and
subsea production
• Enhanced Oil Recovery
• Advanced seismic
technology (3-D & 4-D)
14
Geographic Location of Shale Gas
Resource Plays
15
Crude Oil Producers & Consumers
Leading Crude Oil Producers
In 2008, the U.S. was the third
largest producer of crude oil,
behind Russia and Saudi Arabia.
Leading Crude Oil Consumers
In 2008, the U.S. was the largest
consumer of crude oil,
accounting for 24% of global
crude oil consumption.
Source: EIA , Annual Energy Outlook 2009.
16
U.S. Refined Product Demand
mbpd
16,000
14,000
Despite volatility in
prices, U.S. demand
for gasoline and
diesel increases
steadily.
$/gal
$4.50
$4.00
$3.50
12,000
$3.00
10,000
$2.50
8,000
$2.00
6,000
$1.50
Recession
4,000
$1.00
2,000
$0.50
Recession
Recession
Recession
0
1983
$0.00
1985
1987
1989
Distillate Demand
Source: EIA .
1991
1993
1995
1997
Gasoline Demand
1999
2001
Gasoline Price
2003
2005
2007
2009
Distillate Price
17
El Dorado Refinery
Supplies around 1%
of total U.S. product
demand
18
Will we buy gasoline at any price?
Demand Correlation vs Gasoline Pump Price
Below $3.50/gallon,
price changes have
little effect on
demand.
Correlation
between
price moves
and demand
moves
Above $4.00/gallon,
price changes have
significant effect on
demand.
Source: Deutsche Bank.
• Research shows that consumers begin to modify
transportation behavior at $3.50/gallon.
• In 2008, as crude prices rose to $147/barrel and gasoline
prices exceeded $4.00/gallon, consumers began to buy
less gasoline and diesel.
19
Nuclear
U.S. Nuclear Industry
• As of 2008, there were 66 nuclear power plants with 104 licensed
nuclear reactors in 31 states in the U.S.
• Nuclear growth is slow due to permitting and public policy issues.
• New development has very long lead time (10 years).
• The nuclear industry is not expected to be a major part of the “solution.”
21
Renewables
Domestic Renewable Energy
Hydroelectric power
is the primary
source of renewable
energy, accounting
for 34% of the total.
Source: EIA , Annual Energy Outlook 2009.
• In 2008, about 7% of all energy and about 20% of all electricity
consumed was from renewable energy sources.
• Renewables are forecasted to increase to about 9% of all
energy consumed by 2030.
23
Renewable Energy Types
Pros
Cons
Biomass
Domestic production
Water & fuel intense,
byproducts
Geothermal
No byproducts
Potentially harmful gases
emitted
Hydropower Ultra-efficient
Dammed waterways
Solar
No fuel inputs
High cost, irregular
output
Wind
No fuel inputs; minimal
land requirements
Irregular output; noise
pollution
Most likely outcome is “And” not “Or.”
24
Public Policy
Public Policy Issues
Surrounding Energy
Energy
Choices &
Availability
26
Public Policy Outlook for 2010
 Modest steps forward in Climate Change arena
 Moderate politicians not in sync with White House
 Difficult to achieve meaningful change without
binding commitments from India and China
 Higher fuel efficiency standards for autos = smaller cars
 Increasing Renewable Fuels requirements
 Most likely source is corn-based ethanol
 Greater costs for domestic energy producers
 Energy producers still seen as the “piggy bank” to
fund transition to cleaner energy
 Energy Independence issues are seen as less
important than raising revenue to fund domestic
spending programs
27
Is There a Better Way Forward?
 Balance economic growth and energy affordability with
climate change, energy independence and other
initiatives
 Accept that energy imports are a fact of life – work to
increase domestic production and domestic value added
 Avoid displacing American jobs with Climate Change
rules that don’t apply to other (developing) countries
 Increase energy alternatives – Example: Natural gas and
wind; not natural gas or wind
 Level the playing field in any C02 regulation. “My
molecules are not better/cheaper/cleaner than your
molecules!”
28
ENERGY OUTLOOK
% change y-o-y
Demand vs GDP
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
2007
2008
2009
2010
2011
2012
U.S. Gasoline & Diesel demand
2013
2014
2015
U.S. GDP
Source: Credit Suisse, EIA.
$140
$120
$100
$80
$60
$40
$20
$0
2006
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
2007
2008
Crude Oil
Source: Credit Suisse.
$ per mscf
$ per barrel
Oil and Gas Price Forecast
2009
2010
Natural Gas
29
ENERGY OUTLOOK FOR 2010
 Crude prices up ($70) based on international demand for
diesel and jet fuel.
 Natural gas prices marginally higher ($6.00). Production
growing due to unconventional resource production.
 U.S. economy slow to increase energy consumption from
2009 levels due to low growth in industrial demand.
 Fuel conservation efforts offset normal growth in demand
that would accompany economic improvement.
 Gasoline and diesel prices grow with crude oil prices but
refining margins remain narrow.
 More investment made in alternative forms of energy but
meaningful production gains not realized.
30